Aging Population Shaping Health Care Real Estate
The aging population and the unknown future of policies are shifting the way health care organizations think about real estate.
National real estate firm JLL recently completed research on the health care industry and how organizations approach real estate with the changing landscape.
JLL Senior Vice President of Health Care Paul Heiserman said it would be impossible to talk about real estate in health care without first acknowledging the growing need to service the baby-boomer bubble, as well as the increasing costs from more advanced services and pharmaceuticals.
“Better services but not cheaper services,” said Heiserman, who is based in Columbus, Ohio. “That’s driving up prices that are really unsustainable.”
Heiserman said employers used to be more willing to take on the full burden of health care costs for their employees, but with the rising prices, the responsibility is shifting some to the patients.
The shift in payment responsibility is causing some pinches at the health care provider level and shifting the focus on where the importance of health care lies, Heiserman said.
A greater importance is being placed on reducing per capita cost, improving the overall population health and improving the overall patient experience, he said.
“Those three slices are driving a lot of what we’re seeing in the health care industry in terms of real estate,” Heiserman said.
JLL’s research concluded with five main trends in health care real estate: building room for change; optimizing their existing real estate; putting convenience first; smarter site selection based on demographics, including the placement of outpatient surgical centers; and advanced management to mitigate risks of more locations.
The trends are ways health care systems are looking to improve patient care while lowering costs, Heiserman said.
The way health care systems value patients is changing, Heiserman said. Where hospitals used to make more money by having more patients in beds, there’s now an added focus on preventive care to keep patients out of acute care, he said.
The change in philosophy is adding to the first trend, which is designing health care space to flexibility.
“We have a major shift right now, and we’re not sure where it shakes out,” he said. “You can’t count on a facility to be a static use for 20, 30 years. Design it in a way it can be converted to something else. In 20 years, what is an emergency room now might be required to be something else.”
Heiserman mentioned a health care client in another region looking to optimize its lab space. The client currently has three labs spread across different locations, not fully optimizing space.
The opportunity to consolidate lab space and eliminate duplicate real estate uses is another trend seen in the industry, Heiserman said. He said in the past, health care organizations often would grow for the sake of growth.
“They would grow whichever way made the most sense,” he said. “That worked well when there wasn’t pricing pressure. Now, it doesn’t make as much sense.”
More health care organizations nationwide are beginning to follow Fortune 500 companies in the way real estate operations are tracked and organized, he said.
“Hospitals aren’t cutting edge,” he said. “When we talk about optimization, now they’re beginning to look at operations and where they make sense. A lot of hospitals are moving administration into less expensive spaces off campus.
“The highest and best use is not administrative use.”
Another trend in health care is the location of services to more convenient locations for patients, Heiserman said.
Service convenience is being seen in Grand Rapids, said Jeff Karger, JLL senior vice president of brokerage in Grand Rapids. He pointed to Spectrum Health opening clinical space in Grand Haven and on East Beltline.
“They’re bringing it back toward the consumer, versus the acute area downtown,” Karger said. “It puts convenience first, so it encourages the patient to participate more.”
To establish those locations, health care systems are turning toward more detailed analytics to discover what move makes the most sense. The analytics are similar to how national retailers might select their next site, Karger said.
Prior to costs rising significantly, health care systems really didn’t have a need to be super selective in their next site, Heiserman said.
“Hospitals operate independently and tend not to go into other regions and tend to be very large and powerful within their community,” he said. “Hospitals were working on an island for many years and maybe didn’t have the need for increasing sophistication, but now with the pressure, they need to sophisticate to increase efficiency.”
The need for efficiency is driven by the growing competitive nature of health care, Heiserman said. Systems must be able to attract a set of patients more capable of paying so they can in turn offer cheaper services to treat a greater population.
“We’re in a largely competitive environment; most markets have quite a bit of competition, and there’s an element of trying to protect but also gain market share,” Heiserman said. “Particularly, market share that pays well, so the hospital can provide better service.”
Healthcare Real Estate: A Unique And Bullish Market
The future of healthcare real estate is bright with baby boomers aging, but industry leaders weighed in on what could change and why this segment is so unique from an operations standpoint.
“I’m easily bullish [on healthcare real estate]. 100%,” HCP Vice President of Leasing Tom Hulme said. “The market is smoking hot, and I’m absolutely bullish.” Hulme and other healthcare real estate leaders convened Monday at the 2017 BOMA International Conference & Expo to discuss the state of their sector and the unique nature of their arc of commercial real estate. LifePoint Health Senior Director of Real Estate Tammy Moore was equally bullish on the industry based on the sheer fact that there are so many baby boomers aging into the demographic likely in need of healthcare facilities. They were joined by Cambridge Holdings’ Ryan Doyle, who also was optimistic but cautioned ever-changing consumer demands could lead to a bearish climate.
Hospitals in tertiary markets have been closing in the years since the passing of the Affordable Care Act, but the panel was not ready to put the blame solely on the ACA. Hulme said his company did not see business impacted in the last seven to eight years from healthcare reform.
“I’ve read a report saying the United States is over-bedded, so you have to wonder if hospitals are closing because of that,” Moore said.
The panel also discussed the unique nature of healthcare real estate. Moderator and Healthcare Realty Trust Vice President Amy Byrd said medical office buildings have more specialized requirements and often have drastically more visitors than other commercial properties, leading owners or managers to approach operations and design in a different way — down to slight inclines in hallways and how that might affect a visitor.
While healthcare facilities might require more focus on detail, Byrd enjoys the challenges of this property type.
“I feel every day like I’ve contributed to someone’s well-being,” she said.
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